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AMP chief economist Shane Oliver has stated Australia’s poor housing affordability is due to a swelling population, exacerbated by booming immigration, and the nation’s housing shortfall, adding that constraints of the supply side are not receiving the necessary level of recognition.
Writing in a recent Insights report on Wednesday (20 September), Mr Oliver suggested that the nation had been “lacking” in a debate about how immigration contributes to the issue of housing affordability.
According to the ABS’ March quarter data, Australia’s population rose by 563,000, or 2.2 per cent, over 12 months, with 454,000 of that coming from immigration. Permanent and long-term arrival data in July indicated the increased migration is continuing and could reach a net migration of 500,000 or more in the last financial year.
The continued expansion would take population growth to 2.5 per cent in 2022–23, its fastest since the 1950s, the economist noted.
Mr Oliver acknowledged that a portion of the surge was due to a catch-up after the slump during the pandemic and said it would “help boost GDP growth” with immigration making for “a more dynamic economy”.
However, he suggested that immigration levels should be reduced by nearly half the current levels to reduce the housing supply shortfall.
“The role of high immigration levels (now about 500,000 per annum) can’t be ignored,” he said.
“On our estimates, it needs to be cut back to nearer 200,000 people a year to line up with building industry capacity and to reduce the supply shortfall.”
‘For a country with abundant land, it’s ironic that housing affordability is so poor’
He explained: “What really counts for living standards is per capita GDP (and it’s going backwards) and surging immigration is making the housing shortage worse.
“For a country with abundant land, it’s ironic that housing affordability is so poor. Much of the focus has been on grants and other means to make it easier for first-time buyers to get a loan or on rent subsidies. But of course, this just boosts demand making affordability worse.”
Despite welcoming the passing of the Housing Australia Future Fund (HAFF) and the National Housing Accord (which has a target to build 1.2 million new homes over five years from July 2024), Mr Oliver emphasised the difficulty in achieving their targets.
He commented: “First, despite a backlog of approvals yet to be completed we are struggling to complete 180,000 dwellings p.a. with labour and material shortages and regular failures among home builders.
“We may be able to get this back up to 200,000 p.a. with more units/lower cost housing in the mix (like late last decade), but it’s hard to see where the capacity is going to come from to get to 240,000 dwellings a year.
“Secondly, similarly albeit less ambitious supply-side commitments in the past have failed. And finally, as noted, the surge in immigration is adding to the already large supply shortfall and threatening to swamp the extra supply commitments governments are making.”
Despite state governments bringing in new commitments to build additional homes, make it easier to build more homes, encourage greater decentralisation to regional Australia to take the pressure off cities, and introduce tax reform (such as replacing stamp duty with land tax), Mr Oliver deduced that “it’s impossible to escape the conclusion that immigration levels need to be calibrated to the ability of the home building industry to supply housing”.
He stated: “Current immigration levels are running well in excess of the ability of the housing industry to supply enough homes, exacerbating an acute housing shortage and poor housing affordability.
“Our rough estimate is that if home building supply capacity is 200,000 dwellings a year (as we managed in the five years to 2022) then immigration levels need to be cut back to 260,000 from around 500,000 now.
“But if capacity is just 180,000 dwellings p.a. or we want to reduce the accumulated supply shortfall by say 20,000 dwellings a year then immigration should be cut back to near 200,000 people a year.”
[Related: ‘FOMO phenomenon’ pushes property price growth: Oliver]
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